Poor stock control results in stock in and stock out costs

• Stock-in costs

  The costs associated with holding too much stock
• Stock-in costs

  • Can be particularly bad for small businesses with little money
  • Can be particularly bad for businesses in a dynamic market where there is a high chance that demand may change before stock gets used up
• Stock-out costs

  The costs associated with running out of stock
• Poor stock control can lead to

  1. High stock-in costs

  2. High stock-out costs
• Stock-out costs in a manufacturing firm

  • Running out of stocks of raw materials would mean that production had to stop but workers and expenses would still need to be paid
  • Could be demotivating for staff as they wouldn't have any work to do
• If a business is a supplier for other businesses

  Running out of stock could affect the whole supply chain
• Stock-out costs

  • Lost sales from losing customers to a competitor, as the customers become tired of waiting for new stock to arrive
  • Can damage the firm's reputation
  • Firm may have to compensate customers for delayed or missing orders, which increases costs